A report released today
by Public Interest Research Group has critically examined
investments by the German corporations into India, during the
post-liberalization period, 1991-96. The report entitled The
Reality of Foreign Investments : German Investments in India
(1991-96) looks into trends and patterns of investments from
Germany to India. The report investigates and critically analyses
the main factors and motives of German investments in India.
According to the report, there are three major reasons for German
corporations to invest in India - availability of cheap labor
coupled with toothless labor legislation's; India's huge domestic
markets of goods and services; and India's lax environmental and
public health regulations with their ineffective implementation
by the state machinery. In the rush to attract foreign
investments with no overall developmental agenda, Indian
government has given permission to a large number of investment
proposals from Germany without looking into their implications on
people, economy and natural resources. These proposals include
large investments in 'low priority' areas. Besides, investments
have also been approved in dyestuffs, PVC, agrochemical,
foundries and other industries which are considered to be highly
polluting and environmentally destructive.According to the
report's author, Kavaljit Singh, "The rapid increase in
German investments into India can be attributed to Germany's own
domestic compulsions and problems such as high labor wages (which
are highest in the world) and growing awareness of people on
environmental and health issues and subsequent strict enforcement
in Germany, rather than their motives to make Indian economy
efficient, competitive and vibrant."

The report states that
it is becoming economically unlivable for the German corporations
to continue their manufacturing in Germany because of these
factors. As a result, German corporations are
shifting their manufacturing plants to India where labor costs
are very cheap, domestic market is huge and environmental and
health regulations and standards are laxed.The report also
provides evidence to prove the labor, public health,
environmental and other violations committed by German
corporations while doing businesses in India. The report calls
for immediate action by the Indian authorities to seriously
examine these implications and take suitable steps to enforce
regulatory mechanisms and legislations.

Executive Summary

The Reality of
Foreign Investments :
German Investments in India (1991-96)
Kavaljit Singh

Since 1991, the Indian
government has announced many policy measures to attract foreign
investments as part of structural adjustment program. Although
the economic reforms initiated by Congress government since 1991
were criticized by all major political parties, ranging from the
right-wing Bhartiya Janata Party to left-wing communist parties.
But, with the change of governments at the Centre in 1996,
commitments to continue liberal foreign investment policy first
by BJP and later by United Front, it is becoming very clear that
there is a growing consensus among political parties on
inviting foreign investments to India. However, despite the
growing confidence of foreign investors, the actual inflows are
just 19% of the approved investments during 1991-96.During the
post-liberalization period ( 1991-96 ), the industrial sector
alone has contributed over 90 percent of the total German
collaborations. The agriculture sector collaborations amount to
less than 2% of the total collaborations and the rest belong to
service sector. The rapid increase in German investments in
India as compared to other countries, since 1991, is an outcome
of intense lobbying and pressures from German TNCs as well as
government representatives. The German investments have been
largely facilitated by offering major concessions including
Investment Protection Treaty and Double Tax Avoidance Pact
between India and Germany. Much of pressure from Germany to amend
India's Patent Act has come from big German TNCs involved in drug
business in India. German drug TNCs are waiting for 2005 to
takeover Indian drug market, thus enabling them to rig drug
prices at will. Large volumes of German investments have come to
India in post-1994 period when the Indian government announced
major policy reforms in power, telecom, mining and other sectors
to attract foreign investments. The major attractions for German
investors in India are cheap labor, huge domestic market, and lax
environmental and public health regulations with ineffective
implementation by state machinery.The cheap labor with toothless
labor legislation's in India are one of the major attractions for
German investors. The growing wage disparities between India and
Germany can be understood by putting this question : Whom would
you rather employ - one German worker, two Americans, five
Taiwanese, eight Brazilian or 128 Indians? The hourly wage bill
for each of these five groups of workers turns out to be the
same. If an Indian manufacturing worker can be hired for only Rs
8 (25 cents) an hour, compared to $32 in Germany, surely it makes
sense for German investors to shift their production to India.

German TNCs do not
loose but gain more by shifting production processes to India as
activities such as design, patent, marketing and finance
contribute many times more than the value (eg. a shirt) than its
basic manufacture. Over the years, a number of labor legislations
for the organized sector got enacted in India to protect labor
from unfair and anti-labor policies of the management. However,
very few will disagree with the fact that these labor
legislations have, by and large, remained on paper. Instead of
advocating improvements in the living conditions of the workforce
and effective implementation of existing labor laws and schemes,
there has been a growing demand by German investors and
government for the dilution of labor laws. Germany has been
consistently pressurizing India to change existing labor
legislations through various forays. The major demands centers
around amendments in Industrial Disputes Act and introduction of
an Exit Policy. The famous 54-point memorandum submitted by
German Chancellor Helmunt Kohl to Indian government demanded the
amendments in the labor laws to make these more
investment-friendly.Unable to make amendments in the existing
labor laws due to strong opposition from the workers, many German
corporations in India are adopting new strategies to marginalise
and reduce the bargaining power of the Indian labor. These
strategies include ban on new recruitment's in unionised
categories, parallel production, Voluntary Retirement Schemes,
etc.

Another major
attraction for German investors is India's huge domestic market
of goods and services. The truly scarce commodity in the world
today is not capital; it is markets. Our investigations found
that 82 investment proposals from Germany were cleared during the
period, 1991-96, into areas which can be defined as
'low-priority' areas. These investment proposals include products
like Beer, toilet soaps, cosmetics, perfumes, jewelry, decorative
tiles, BMW mobikes, Mercedes Cars, fruit juice concentrates and
many more. Besides, many German TNCs are involved in takeovers
and mergers with existing Indian companies thus capturing
increasing share in domestic markets. German TNCs - Seimens,
Bayer and Hoechst are involved in takeovers and mergers in
India.Besides cheap labor and domestic market, India's lax
environmental and public health regulations are the other major
factors facilitating German investments in India. With the
growing awareness of people on environmental and health and
safety issues and subsequent strict enforcement of these
standards in Germany, German corporations are getting more
attracted to India where one can get easily away from any
catastrophe. German companies are currently investing in
dyestuffs, PVC, agrochemicals, foundaries and forging, and other
polluting industries in India. India is becoming a major
manufacturing base for German corporations.German companies
involved in dyestuff industries are closing down shutters as
environmental movement has gained political clout and
implementation of anti-pollution norms has become very stringent.
With the high cost of effluent treatment plants and other
anti-pollution measures, it becomes economically unviable for
these companies to continue their plants in Germany. Out of total
investments of Rs. 302 million in India's dyestuff industry
during 1991-96, 52% has come from Germany alone. Following are
some of the recent instances of violation of existing
environmental, public health and other regulations by the German
TNCs in India. These instances clearly indicate that German
companies have been allowed to get away easily whereas in Germany
both public opinion and state machinery would have ensured
otherwise.n In 1996, Boehringer Mannhein India Limited was
involved in a controversy as its drug, Comsat Forte, was found to
be contaminated which led to the death of two people and
seriously affected several others. n Hoechst India has been
accused of its involvement in transfer pricing by importing a
drug intermediate from its German company Hoechst AG, at seven
times more than the international competitive prices. n In 1994,
Siemens was accused of dumping in India a cancer cure machine
which has been banned in the West. Siemens was offering these
machines at dump prices in order to get rid of the large stocks
of sub-standard equipment which it cannot market in the West.n In
1996, Bayer (India) has been accused of 'modifying' production
processes and claiming price control exemption on the grounds
that the new processes are being developed through indigenous
R&D.n Hoechst, which is also involved in biotechnology, has
been found of taking biological/genetic resources from India and
making commercial use of these resources, including by obtaining
patents.

It is high time that
Indian government look into the wider implications of foreign
investments, including German investments, on India's domestic
industry, economy, people and natural resources and strictly
enforce regulatory mechanisms and legislations.

The copy of The Reality
of Foreign Investments: German Investments in India (1991-96) is
available for Rs 80 ($10).